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$779 Billion Budget Deficit the Nation's Highest Since 2012; Trump Attacks Stormy Daniels After Legal Win; Candidates Debate in Two Key Races: VA House and AZ Senate; Trump Suggests Mattis Could Leave Administration. Aired 12:30-1p ET

Aired October 16, 2018 - 12:30   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

[12:30:00] CHRISTINE ROMANS, CNN CHIEF BUSINESS CORRESPONDENT: -- the U.S. is spending more than it takes in. Spending rose three percent because of higher interest payments on debt and more defense spending. But tax revenue failed to keep up thanks to tax cuts. Government revenue was flat. Corporate tax collection, taxes from companies fell 22 percent or $76 billion.

Now the White House defends the tax cuts. They say it's boosting economic growth which will eventually increase tax revenue. The treasury secretary Steven Mnuchin said the White House will eventually, quote, cut wasteful spending to make up the difference. Now that makes progressives nervous who fear it likely means social security and healthcare cuts.

And finally, John, deficits, of course, are not free. Someone has to lend Uncle Sam the money to leave beyond its means. And who is the largest foreign holder of U.S. debt? China. The U.S. is currently embroiled in a trade war with its largest foreign creditor.

John?

JOHN KING, CNN ANCHOR: Christine Romans with the numbers. I just posed the question that she asked at the beginning. Does it matter anymore?

It used to matter. It used to matter. This is to be a big Republican argument against Democrats. It was a big Republican argument or Donald Trump argument when he was a businessman against Barack Obama. What in the world is going on in Washington?

PHIL MATTINGLY, CNN CONGRESSIONAL CORRESPONDENT: Look, it's going to matter a lot when Democrats control any of the branches of government again. That's when Republicans are really going to focus on the issue. Because it's a winning political battle for them --

KING: Blame Democrats for big spending?

MATTINGLY: Yes. This is why it's all happening. This is exactly it. Now, that's when it comes up. It becomes a big electoral talking point. Look, Christine did a great job of laying out kind of the details of it. But when you have major increases in defense spending plus to get the deal in defense spending, you had increases on domestic programs as well for Democrats and you have the tax cuts, this is what's going to happen. I think the big question now is, OK, what happens next?

You know, we're going to hear the cut waste, fraud, and abuse which is the garbage line that everybody repeats. But Republicans, Mitch McConnell said it today in an interview with Bloomberg, you know, we're going to go after entitlement or safety net programs.

KING: Let's listen to that because there's a key problem with that. But Mitch McConnell is right. If you want to shrink deficits, bring Democrats to the

(BEGIN VIDEO CLIP)

SEN. MITCH MCCONNELL (R), MAJORITY LEADER: It's very disturbing, and it's driven by the three big entitlement programs that are very popular, Medicare, social security and Medicaid. That's 70 percent. Hopefully at some point here we'll get serious about this. We haven't been yet.

(END VIDEO CLIP)

KING: We haven't been yet. The problem for the Republican leader, Paul Ryan is leaving as speaker. This was his holy grail, what he promised to do if he got power and influence in Washington, done is the budget, (INAUDIBLE). The problem for Republicans is this guy.

We don't have that --

(BEGIN VIDEO CLIP)

DONALD TRUMP, PRESIDENT OF THE UNITED STATES: Every Republican wants to do a big number on social security. They want to do it on Medicare and Medicaid. And we can't do that.

Save Medicare, Medicaid, and social security without cuts. Have to do it. Get rid of the fraud. Get rid of the waste and abuse, but save it.

(END VIDEO CLIP)

KING: So, I don't assume that now heading into his re-election campaign where he wants older voters, that guy is going to change and say, hey, let's go social security and Medicare.

TOLUSE OLORUNNIPA, WHITE HOUSE REPORTER, BLOOMBERG: No. He hadn't changed and he's saying the same thing on the campaign trail. Just a couple weeks ago he said, you know, Republicans are not going to touch Medicare. I was the only Republican in the primaries who said I was not going to do anything about Medicare. I'm going to save your Medicare and social security.

And we've seen Republicans follow President Trump on immigration and all kinds of different issues. Some of the foreign policy things, things that he's doing. They really wanted to show how close they are to him. And now that he is breaking with Republican orthodox beyond the entitlements, no one is speaking up.

We've seen Mitch McConnell in that interview basically go as far as any Republican has in saying hopefully we'll get serious about this at some point but not saying that the reason that they're not serious about it, not saying that the reason that they're not talking about it anymore is because the president has said that this is not something he's serious about. He wants to show voters that he's going to spend money on things that they care about and cutting spending is not one of his priorities. It's not something that he campaigned on. And it's not something that he's leading the Republican Party towards doing.

LISA LERER, NATIONAL POLITICAL REPORTER, THE NEW YORK TIMES: I mean, the president has shifted the priorities of the Republican Party in a lot of different areas and this is another example. I mean, when you poll Republican voters, there's some evidence that they still list deficit reduction fiscal responsibility as a top issue, but it's not the top issue. And we -- this is Trump's Republican Party.

So there's no reason if you're a Republican in the House or the Senate, you know that the president has a lock on the base of that party which is your base too. And it doesn't make sense politically at least to go up against him.

KING: Right. They're not going to do painful difficult things if they can get away with it. If they can -- if the voters don't hold them accountable before, they're not going to do it.

Save the thought, we'll be doing this for a while I suspect.

Up next, he president's cup run it over with cash. Lots of time left to raise even more not for 2018 but for his 2020 re-election bid.

(COMMERCIAL BREAK)

[12:39:23] KING: Topping our political radar today, President Trump gloating and name calling after winning a court battle against Stormy Daniels who claims of course that she had an affair with him years ago and then was paid to keep it a secret. Yesterday, a federal judge threw out a defamation suit Daniels filed over one of the president's tweets. That judge says the president is now entitle to collect legal fees.

A short time ago, the president took to Twitter and went after Daniels again, saying, and I apologize I'm quoting the president, "Great, now I can go after horse face and her third rate lawyer." A reference there to Michael Avenatti.

More than 200 immigrant children still alone and still in limbo. The government says it's still holding 245 kids separated from their parents under the president's controversial border policy the administration put it in place earlier this year.

[12:40:06] Of that figure, 175 are children whose parents have been deported. Just 18 still in the process now of being reunited.

And the president adding $18.1 million last quarter, just last quarter, to his already historic re-election haul. The Campaign Finance Institute says he's now raised more $106 million more than any of his predecessors at this moment dating back to Ronald Reagan. And the president has two years to raise even more before he takes on whomever the Democrats decide to nominate in 2020 whether it's Joe Biden, Kamala Harris, or the president's favorite, Elizabeth Warren.

(BEGIN VIDEO CLIP)

TRUMP: I hope she is running for president because I think she'd be v very easy. So I hope she would be one of the people that would get through the process. It's going to be a long process for the Democrats.

(END VIDEO CLIP)

KING: I was going to talk about that but maybe I'll come back to it.

What is it about this president, if, if he decides he doesn't want us talking about Saudi Arabia or whatever, and decides he wants to gloat about winning against Stormy Daniels in court, why does he have to criticize her appearance? What is it about him?

JULIE HIRSCHFELD DAVIS, WHITE HOUSE CORRESPONDENT, THE NEW YORK TIMES: I think it's -- his ego is wounded by her. She talked about his anatomy in an unflattering way in her book. And he feels like, you know, he won and she lost. And we know that the president turns to this kind of misogynistic phrases. He's used them in the past.

He doesn't seem to pay any political price or any price in the public realm for saying these things. And you kind of have to pinch yourself often and remember that he's the president of the United States. And you have Americans of all walks of life and all of ages seeing and listening to these attacks. And he doesn't care. This is the sort of thing that comes naturally to him.

KING: It will be interesting three weeks from tonight to watch the key races in the suburbs and see if the president finally does pay a price. We will see. Suburban women are going to be I think at least as of now the story of this election. We will see if it plays.

Up next, debate night for key House race in Virginia. So, she's not on the ballot, why do Nancy Pelosi's name keep coming up?

(BEGIN VIDEO CLIP)

ABIGAIL SPANBERGER (D), VIRGINIA CONGRESSIONAL CANDIDATE: I question again whether Congressman Brat knows which Democrat in fact he's running against because I am not the Democrat who supported single payer in the primary. I am not Nancy Pelosi, and I am not President Barack Obama.

(END VIDEO CLIP)

(COMMERCIAL BREAK)

[12:46:34] KING: Welcome back to the campaign trail now. For a glimpse at two fiery debates in races critical to the midterm fight for control of the House and the Senate. Virginia's 7th district House race, the incumbent David Brat repeatedly tried to label a Democrat, her name is Abigail Spanberger, but not to him, he kept calling her a Nancy Pelosi supporter.

And in Arizona's race to replace Senator Jeff Flake, Republican Martha McSally traded chides with Democrat Kyrsten Sinema. One Arizona debate flash point, this 2003 Sinema radio interview that was unearthed by CNN's KFILE Team. The host hypothetically asked if she would oppose him joining the Taliban. Here is Sinema's response.

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: As an individual if I want to fight in the Taliban army, I go over there and, you know, I'm fighting for the Taliban. I'm saying that's a personal decision --

REP. KYRSTEN SINEMA (D), ARIZONA SENATE CANDIDATE: Well, I don't care if you go do that. Go ahead. I don't want to debate, you know, any kind of -- I don't know, fiscal opportunity with you. I'm interested in talking about the war, specifically I'm interested in talking about opposition to the war.

(END VIDEO CLIP)

KING: Now, McSally who's a veteran combat pilot, took that and accused Sinema of treason.

REP. MARTHA MCSALLY (R), ARIZONA SENATE CANDIDATE: I want to ask right now whether you're going to apologize to the veterans and me for saying it's OK to commit treason --

UNIDENTIFIED MALE: Please, we are running out of time so we got to get a response.

MCSALLY: No, we need a response because she owes us an apology.

UNIDENTIFIED MALE: Please.

SINEMA: Well, Martha has chosen to run a campaign like the one you're seeing right now. Where she's engaging in ridiculous attacks and smear my campaign. And she's just trying to cut, cut, cut and not share the full picture.

(END VIDEO CLIP)

KING: It's a fascinating race. It's very close, it's very competitive. The Democrat in some polls is ahead. Republicans think it's moving their way at the end.

She didn't give a direct answer there. She did say in that interview, I'm OK with that. MATTINGLY: Yes, look, so two things. One to your point, you talked to Republicans, you asked them if they would be in the position they're in right now with the numbers they're seeing a year ago, they would be high fiving one another. It doesn't mean the race is over. It doesn't mean McSally can win but it certainly in a position.

The second, and I've been talking to (INAUDIBLE) about this is, what was the self-scrub that Kyrsten Sinema's team did in advance of her running. Like this stuff dropping at this time is problematic. There's no question about it. I don't know how problematic, I don't know if it changes the dynamics of the race. But clearly the McSally team believes, especially given her background, that this is an opportunity, they're seizing on this opportunity and they're going to make her -- or try to force her to answer for this every single day for the next 20 somewhat days in the hopes that that can get them over the edge or get them closer to where they are right now.

KING: And again, impossible, really. I mean, somebody will dispute this out there on the internet, but almost impossible for the Democrats to somehow take control of the Senate without flipping that race. Highly competitive, two female House members running against each other. House members when they run statewide, the first time especially often have a hiccup. One of them is going to win here.

OLORUNNIPA: Yes, and Democrats basically have to have a perfect record in order to take over the Senate. They can't have all of these errors. They have to pick up Arizona. They have to pick up Nevada. They have to pick up all the areas where things are somewhat close, and they also have to pick up some of the states where right now they're running behind.

And that's what makes these types of issues more difficult for Democrats. The fact that some of this late stage October surprises are starting to drop, and Republicans are seizing on it. They're not running on tax cuts. They're running on cultural issues. And if they get a gift like this, old tape of a Democrat saying something that is not politically sustainable, then they're going to seize on it and you're going to see a bunch of ads.

[12:50:07] And they have plenty of money to do it so you can expect to see more of that.

KING: And to that other race, Dave Brat versus, sorry, Abigail Spanberger. That's in Virginia. I had Nancy Pelosi is in my head because he kept saying it so many times in the debate last night.

If you don't like to stay up until 4 a.m. on election night, that'll be an early one in the sense that we -- the Republicans are trying to keep their losses in Virginia to one seat, the seat just across the Potomac River here. If they lose that, it has some Richmond suburbs where the president is in trouble, it also then moves out to rural areas where the president and the Republican Party is stronger. It is a classic. If Dave Brat loses, what does that tell us?

LERER: Well, I think it tells us that we are -- we may be in for a Democratic wave. This is one of those seats as you point out that's worth watching. It's a traditionally Republican district. Trump won it by a fairly decent margin. It was Eric Cantor's seat.

But I was down there a couple weeks ago and the Democratic energy, particularly in those Richmond suburbs, particularly among those suburban women who were like a broken record, I'm talking about these days is really palpable. And she's a very attractive candidate. So, it'll be interesting to see how that one plays out. And that's the kind of thing that I think we'll be hearing a lot about as the night goes on when people are looking for those early signs of whether Democrats are going to take the House and if they do, how big that wave is.

KING: I still vote, you should all stay with us for some coffee, stay with us until 4 or 5 a.m. but that will be an early one we'll be watching.

Up next, mad dog Mattis a Democrat? And before we go to break, not sure Johnny Cash would approve but here's a North Carolina Democrat who wants to strum his way to Washington.

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: I'm a working man running for Congress. Phillip Price needs your vote. Phillip Price running for Congress. You know he's our only hope.

(END VIDEO CLIP)

(COMMERCIAL BREAK)

[12:56:35] KING: Welcome back. The defense secretary, a pretty smart guy, today says he's not going to try to read into the boss' answer. The president suggested to 60 Minutes that Secretary James Mattis might leave his post at the Pentagon. Asked what he make of the president's comments, Mattis says not too much.

(BEGIN VIDEO CLIP)

JAMES MATTIS, DEFENSE SECRETARY: Nothing at all. I'm on a team. We have never talked about me leaving. And as you can see right here, we're on our way where we just continue doing our job.

(END VIDEO CLIP)

KING: Bill Belichick, defense secretary. Mattis gave more a definitive answer to another of the president's musings that the career military man might be a Democrat.

(BEGIN VIDEO CLIP)

UNIDENTIFIED FEMALE: Are you a Democrat?

MATTIS: You know, we're all built on our formative experiences. When I was 18, I joined the Marine Corps, and in the U.S. military we are proudly apolitical. I've never registered for any political party.

(END VIDEO CLIP) MATTINGLY: And we're onto Cincinnati.

KING: And we're onto -- yes, Chicago. But you got to give him credit. You got to give him credit. It has to be frustrating. You know, you're a military hero, you're an accomplished member of the armed services for a long time. Now you're the defense secretary of the United States. You have a distinguished career and your boss is dumping on you and you just be cool.

LERER: I mean, he knew what he signed up for, right? Like everyone -- I'm sure he did not miss the 2016 campaign. It seemed pretty hard to miss. So I think everyone who is in these positions made a certain calculation about what they want to get done, and knew what they would -- that they would have to take some incoming.

DAVIS: Well, and this has been the dynamic between the two of them from the very beginning. You know -- remember when Trump introduced him at that big rally -- I think it was in North Carolina and he called him mad dog, and, you know, he really reveled in that nickname. And you could tell even then the body language, the actual language of Jim Mattis was very, you know, stand offish. He's a military guy, he spent his life in the military, he is apolitical. We've never heard him express an opinion about any issue that I'm aware of.

And so he's really studiously I think more than other members of this cabinet, tried to hold that at an arm's length. And we see those cabinet meetings where everyone is praising Donald Trump and laughing at his joke. And Mattis sits there kind of stoically and does his thing and it can be hard when the president (INAUDIBLE).

KING: It can be hard when the president says you're a Democrat, when the president says you might be leaving. Or as the president says as he did on 60 Minutes, Sunday night, that I know a lot more about this guy, about everything.

(BEGIN VIDEO CLIP)

LESLEY STAHL, 60 MINUTES: Is it true, General Mattis said to you, the reason for NATO and the reason for all these alliances is to prevent World War III?

TRUMP: No, it's not true. Frankly, I like General Mattis. I think I know more about it than he does, and I know more about it from the standpoint of fairness. That I can tell you.

(END VIDEO CLIP)

KING: He knows more about it?

OLORUNNIPA: I think if anything drives Mattis out, it will be that. The idea that the president is overruling him, thinks he knows better even though Mattis has a long history and has been studying these things for decades. President Trump overruling and at the end of that interview, he said to Lesley Stahl, I'm president and you're not. If he takes that attitude to Secretary Mattis I think he may hit the exits. UNIDENTIFIED FEMALE: Good to clear that up.

KING: Good to clear that up but remember, he's just doing his job.

Okie dokie. Thanks for joining us in the INSIDE POLITICS today. Make sure you subscribe to our podcast. We have a lot of fun there.

See you back here this time tomorrow. Have a great. Wolf starts right now.

WOLF BLITZER, CNN ANCHOR: Hello. I'm Wolf Blitzer. It's 1 p.m. here in Washington. Thanks very much for joining us.

We begin with a very high stakes mystery of the missing journalist starting to --